Individuals who are approaching the senior years need to think about how they will be able to pay for long-term care and medical bills as they age. There are programs available that can help, but some people might find that they are unable to quality for them because of asset or income rules. One of these programs is Medicaid, which has very specific qualification points regarding a person’s income and assets.

Because the Medicaid program is based on a person’s need for assistance, individuals must show that they have a financial need for help. This is done by listing the assets and income of the household. When a person applies for Medicaid, they are subject to a look back period. This is a five-year term that ends on the date of the application.

The Medicaid program will look for the transfer or sale of assets that occurs during the look back period. The value of the assets that are transferred or sold counts against the assistance the person would receive. The penalty is typically the equivalent of the length of time the value could have paid for nursing home care. For example, if an asset is sold for $20,000 and the nursing home is $5,000 per month, the person would be ineligible for assistance for four months.

The look back period is a prime example of why asset planning is so important as people age. By taking steps to plan for the time when you might need Medicaid’s assistance, you may be able to avoid having to deal with a penalty. Your attorney can help you determine what steps you may be able to take to protect your assets.